In a historic departure from conventional nomenclature, Honourable Finance Minister Nirmala Sitharaman, known for her lengthy budget speeches, delivered her shortest-ever budget address in the Parliament. This Budget Analysis offers a deep dive into how the Interim Budget 2024-25 paves the path for India to emerge as Viksit Bharat by 2047, with the Vision –
Prosperous Bharat in harmony with nature, modern infrastructure, and opportunities for all.
The FM, presenting her sixth consecutive budget and notably an interim one, introduced unconventional interpretations of familiar acronyms - FDI, GDP, and GYAN. FDI metamorphosed into First Develop India, GDP took on the guise of Governance Development Performance, and GYAN evolved into Gareeb (Poor), Youth, Annadata (Farmer), and Nari (Woman).
In this article, ViTWO Finance has touched on the key Budget highlights, challenges, and optimistic takeaways from the budget, unveiling a roadmap for inclusive growth, fiscal prudence, and environmental resilience.
Budget 2024 Key Pointers: 5 Disha Nirdashak Baatein by FM Sitharaman
Finance Minister Nirmala Sitharaman stressed on five ‘Disha Nirdashak’ baatein:
• Social justice as an effective governance model
• Focus on the poor, youth, women, and the Annadata (farmers)
• Focus on infrastructure
• Use of technology to improve productivity
• High power committee for challenges arising from demographic changes
Interim Budget: A Vote on Performance & Future Focus
This interim budget, a reflection of the Narendra Modi-led government's decade-long journey, deviated from populist measures, emphasising fiscal consolidation and expanded capital expenditure.
The budget size for 2024-25 is Rs 47.66 trillion, up 6.1% from the previous fiscal year's revised estimate.
To address the fiscal deficit, pegged at a lower-than-expected 5.1 per cent of the GDP, the government plans to borrow Rs 14.13 lakh crore from the market through bond issuances.
A critical aspect of the budget is the nominal Gross Domestic Product (GDP), indicating the size of the economy at current prices. The nominal GDP growth rate of 10.5% for the upcoming fiscal year hints at a real GDP growth rate of 6% to 6.5%, tempered by an expected inflation rate of 4-4.5%.
- Reduction in Fiscal Deficit: The fiscal deficit, the yardstick for government borrowing, witnessed a significant reduction. The government aims to contain it at 5.1% of the GDP in the coming fiscal year — a welcome achievement as it could positively impact borrowing costs for the private sector.
- Capex Target Not Met: While the government set a record-high target for capital expenditure (capex) at Rs 11.11 lakh crore, the actual expenditure fell short, raising concerns about its impact on overall economic growth. Capex, when allocated efficiently, has the potential to significantly boost GDP and sustainable government spending.
Setting Focus on People-Centric Inclusive Development
In Budget 2024, there is a resounding emphasis on people-centric inclusive development, marking a major shift towards holistic growth. The budget reflects a deep commitment to addressing the diverse needs of the population, with a keen focus on sectors that directly impact the common citizen.
By prioritising inclusivity, the government demonstrates its awareness of ensuring that the benefits of progress reach every corner of the nation, fostering an environment where every citizen can participate in the country’s advancement. This Budget Analysis shows that this year’s plan is not just a financial document but a vision for shared prosperity and accessible opportunities.
Budget highlights include:
• Substantive development of all forms of infrastructure - Physical, Digital and Social
• Digital Public Infrastructure (DPI) - Promoted formalisation and financial inclusion
• Deepening and widening of tax base via GST
• Strengthened financial sector brought savings, credit and investment back on track
• GIFT IFSC - A robust gateway for global capital and financial services for the economy
• Proactive Inflation management
• All parts of the country becoming active participants in economic growth
Prioritising Spending: A Critical Evaluation
Key sectors like health and education, pivotal for a developing economy, faced budgetary cuts despite their importance in government spending. The revised estimates for the current fiscal year reveal further shortfalls, raising questions about the government's commitment to essential sectors.
• Cuts in Core Schemes: Major schemes targeting marginalised sections of society witnessed cutbacks. The Umbrella Scheme for Development of Scheduled Castes, earmarked at Rs 9,409 crore, saw revised estimates at Rs 6,780 crore. Similar reductions were noted for Scheduled Tribes and minority-focused schemes.
• Income Tax Emerges as the Primary Income Source: Traditionally, market borrowings have been the primary source of income. Surprisingly, the next fiscal year's budget estimates highlight income tax revenues as the top contributor (19%), surpassing corporate tax (17%) and GST (18%). This shift in government spending priorities highlights reliance on direct taxes, with corporate tax, GST, and borrowings following suit.
Let's embark on a data-driven journey through the key facets that define the economic landscape.
A Deep Dive into the Economic Review Document
The 'Economic Review Document' released by the Department of Economic Affairs (DEA) illuminates the trajectory of the Indian economy and complements this Budget Analysis.
Capital Investment: A Driving Force
Undeniably, the Indian government's unwavering focus on capital expenditure stands out as a cornerstone for infrastructure development.
Expert Analysis: A Surge in Capex
• Growing Capex: Public sector capex has soared by 146%, from Rs 58,812 crore in FY 2015 to Rs 1,44,634 crore in FY 2023 (RE).
• Infrastructure Development: The ripple effect is evident, with national highways expanding by 67% and electrified railway lines witnessing a 165% increase.
Future Projections:
The government's commitment to sustained growth is palpable, as the budget for FY 2024 (BE) earmarks Rs 7,90,435 crore for capital expenditure, representing a 10% increment from the revised estimate for FY 2023.
Financial Sector Growth
Amidst a surge in credit growth, the Indian banking sector remains robust, highlighted by declining Gross NPAs as a percentage of Gross Advances. Key ratios of Public Sector Banks (PSBs) underscore the overall health of the banking system.
Expert Analysis: Banking Resilience
• Declining Gross NPAs: A commendable reduction from 11.2% in FY16 to 5.8% in Sep-23 reflects prudent management of loan portfolios.
• Improved Key Ratios: Metrics such as Net Interest Margin (NIM), Return on Assets (RoA), and Return on Equity (RoE) depict a banking sector on the ascent.
However, ensuring sustainability without a subsequent rise in NPAs is imperative for long-term stability in government spending and credit growth.
Corporate Sector Renaissance
The corporate sector paints a picture of improving balance sheets, rising profitability, and enhanced debt ratios. This renaissance bodes well for a stronger corporate earnings cycle, poised to propel the broader economic engine.
Expert Analysis: Corporate Transformation
- Strengthening Balance Sheets: Corporate debt as a percentage of GDP has declined from 64% in FY2013 to 52% in FY2023E.
- Rising Profitability: Corporate profits, as a percentage of GDP, have ascended from 3.7% in FY2013 to 5.2% in FY2023E.
- Improved Debt Ratios: Debt/Equity and Interest Coverage Ratios showcase a stronger corporate landscape adept at managing debt obligations.
Unravelling Investment Rate Dynamics
The infographic sheds light on India's investment rate over the years, presenting a cyclical pattern. Understanding this vital metric is paramount to comprehending the nation's growth trajectory.
Expert Analysis: Investment Rate Unveiled
• Fluctuations in Investment Rate: Rising from 30% in FY05 to 39% in FY12, then stabilising near 31% in FY23E.
• Impact on Growth: The correlation between investment rate and GDP growth emphasises sustained investment and responsible government spending.
Public and Private Synergy
A balanced approach, incorporating public and private investments, is crucial for fostering sustainable growth. Private sector activities fueled the initial surge, while recent upticks are attributed to government-led initiatives.
Forex Reserves: Pillars of Economic Strength
India's growing foreign exchange reserves take centre stage, serving as a formidable buffer against external shocks. Comparisons across different periods underscore the nation's progress and resilience.
Expert Analysis: Economic Fortitude
• Rising Forex Reserves: From $278.0 billion in 2008-09 to $594.3 billion in FY2023.
• Improved Indicators: Stable inflation (5.5%) and rising GDP growth (7.2%) show resilience.
• Global Integration: India’s share in world exports has grown from 1.2% to 1.8%, highlighting economic expansion.
Union Budget Green Flags
The infographic presents a concise yet comprehensive view of the Indian Union Budget, capturing its essence of fiscal consolidation and growth-centric investments.
Expert Analysis: Fiscal Prudence and Growth Synergy
• Balancing Act: The budget balances fiscal consolidation, with the fiscal deficit set to decrease from 6.4% in FY23 (RE) to 5.1% in FY25 (BE).
• Infrastructure Prioritisation: An 11% increase in infrastructure spending demonstrates focus on capital expenditure.
• Market Confidence: The positive response, reflected in lower borrowing costs, underscores investor trust in the government’s Budget highlights.
Key Budget Metrics
- Fiscal deficit: FY 23 (RE): 6.4%FY24 (BE): 5.8%FY25 (BE): 5.1%
- Net Market Borrowing: FY 23 (RE): 11.81 Lakh CrFY24 (BE): 11.80 Lakh CrFY25 (BE): 11.75 Lakh Cr
- Growth in Tax Receipts: FY 23 (RE): 12.7%FY24 (BE): 12.5%FY25 (BE): 11.5%
- Infra Spending: FY 23 (RE): 10.0 Lakh CrFY24 (BE): 9.5 Lakh CrFY25 (BE): 11.1 Lakh Cr
Supplementary Budget Insights
- Infrastructure Focus: A notable 11.1% increase in infra spending to 11.1 Lakh Crore, approximately 3.4% of FY25 GDP.
- Social Housing Initiative: A fresh scheme and allocation to address housing needs for the middle class.
- Healthcare Boost: Expanded healthcare coverage under the Ayushman Bharat Scheme.
- Caution on Rural Economy: A restrained 3% growth in revenue expenditure may result in a delayed pick-up in the rural economy.
Forward Momentum: Key Changes in Direct Tax
No Alteration in Tax Rates
The Finance Bill 2024 maintains stability in Income Tax rates, Surcharges, threshold limits, and Deductions/Exemptions under the old and new Income Tax Regimes. This strategic decision aims to provide certainty and continuity for taxpayers.
Corporate Tax Rates Unchanged
Corporate and cooperative tax rates remain steady, supporting consistent government spending and investor confidence.
Extension of Exemption
In a bid to attract foreign investments, the budget extends the exemption on income by way of dividends, interest, or long-term capital gains for wholly-owned subsidiaries of the Abu Dhabi Investment Authority (ADIA), sovereign wealth funds, or pension funds. The deadline for this exemption is pushed to March 31, 2025, fostering a conducive environment for global investors.
Faceless Scheme Extensions
The time limit for incorporating Faceless Schemes for Transfer Pricing Officer, Dispute Resolution Panel, and Income Tax Appellate Tribunal is extended to March 31, 2025, emphasising the government's commitment to an efficient and transparent tax administration.
Amnesty for Tax Demands
The budget offers amnesty for the withdrawal of outstanding tax demands, extending the deadline to March 31, 2025, for demands up to Rs. 25,000 for the period up to FY 2009-10 and up to Rs. 10,000 for FY 2010-11 to 2014-15.
Extended Time Limits
The time limits are extended to March 31, 2025, for eligible startups seeking deduction under Section 80IAC, specified funds under Section 10(4D), and non-residents with income from royalty or interest in an International Financial Services Centre under Section 80LA.
Major Budgetary Initiatives
The finance minister, renowned for her eloquence, left a lasting impact with the following Budgetary initiatives:
Empowering Women and Students
The budget allocates substantial resources for women-centric schemes, expanding the Lakhpati Didi scheme to benefit three crore women. Additionally, a strategic move consolidates maternal and child healthcare schemes, conveying the government's commitment to women's well-being. For students, the focus on setting up more medical colleges and enhancing skill development signals a proactive approach to youth empowerment.
Empowering the Youth Vision
With a firm emphasis on fostering the entrepreneurial aspirations of the youth, the sanctioning of 43 crore loans under the PM Mudra Yojana is a testament to the government's commitment to supporting budding entrepreneurs. The Skill India Mission takes centre stage, with 1.4 crore youth being trained, aligning with the vision of enhancing employability and entrepreneurial skills. Additionally, the increased budget allocation for the PM-SHRI showcases a dedicated focus on empowering the youth economically.
Investor-Friendly Fiscal Measures
With a fiscal deficit of 5.1% and net borrowing of Rs 11.75 lakh crore, the budget aligns with market expectations, boosting confidence in prudent government spending and capital expenditure efficiency.
Market and Industry Responses
Equity markets, despite modest losses post-budget, respond positively to the reduction in fiscal deficit targets and net borrowings. Corporate leaders commend the budget for outlining a roadmap for inclusive growth, infrastructure focus, and fiscal prudence. The take on fiscal discipline would particularly be appreciated, setting the stage for an optimistic growth framework.
Environmental Resilience Amidst Climatic Challenges
Acknowledging India's vulnerability to climate change, the budget subtly addresses environmental concerns by increasing its targets significantly in Solar Power and the National Green Hydrogen Mission. With 2023 marking the second-hottest year and changing monsoon patterns affecting agriculture, the need for research, development, and climate adaptation measures becomes paramount. The delicate balance between economic growth and environmental sustainability is recognised as a key challenge.
Commitment to meet Net Zero by 2070
The commitment to meet Net Zero by 2070 marks a bold step in aligning capital expenditure towards sustainability. In a pivotal move, the budget allocates viability gap funding to bolster the wind energy sector, promoting clean and renewable sources. Additionally, the establishment of coal gasification and liquefaction capacity aligns with a broader strategy to diversify energy resources. The budget introduces a phased approach for the mandatory blending of CNG, PNG, and compressed biogas, encouraging a shift towards cleaner fuel alternatives. To further support green initiatives, financial assistance is earmarked for the procurement of biomass aggregation machinery, reinforcing the government's dedication to fostering a greener, more sustainable future.
What ViTWO Thinks: Towards a Marathon of Growth
As India navigates through economic challenges, the 2024-25 interim budget lays a foundation for sustainable and inclusive growth. This Budget Analysis highlights fiscal discipline, strategic allocations, and environmental resilience as pillars of progress.
The upcoming RBI MPC (Monetary Policy Committee) Review on February 8th adds another layer of anticipation, with potential impacts on various economic metrics.
The interim budget signals optimism for growth, highlighting the government's stance on balancing interest rates and economic expansion. Its timely shift towards fiscal consolidation bodes well for June's bond index inclusion, and the full budget in July holds promise for an optimistic foreign investment framework.
However, historical growth spurts in India have been momentary. To sustain this momentum, sound macroeconomic fundamentals, widespread skilling, and pragmatic energy transition management are crucial. This tall order necessitates continued reforms. All eyes now turn to the RBI's MPC Review.
Will it align with the budget's stance or adopt a cautious wait-and-see approach?